Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Thursday, July 28, 2011

HERE WE GO AGAIN

I agree with Joe Kristan, and his convert Russ Fox, that the new tax preparer regulation regime will not stop tax cheating or close the Tax Gap.

“One of the preparers — the one who signed all of the disputed returns — was an Enrolled Agent. That meant he had to pass a competency test that is certainly more difficult than any that will be imposed by the new IRS preparer regulation regime. He also had to take continuing education to maintain that status.”

Having the initials EA after one’s name may mean a person knows his/her stuff when it comes to 1040 preparation, but it doesn’t mean he/she is honest. The idea of regulating tax preparers had its beginnings as a reaction to the Enron scandal. The individuals who prepared the fraudulent tax returns for Enron all had the initials CPA after their names.

And I do agree with Russ’s comment that –

“. . . it’s relatively easy for an incompetent preparer to obtain CPE. Just go to courses, doodle on the materials presented, and go home still believing that petting your dog is deductible. As long as you attend the full course (typically, your badge is scanned upon entering and leaving) you will get CPE. Attend enough CPE and your license can be renewed.”

I admit that I have “doodled” and read the paper during many of the repetitive ethics presentations that are tacked on to most CPE offerings. And I have not always paid attention to topics that were not applicable to my practice or of interest to me. On a day that provided me with 8 hours of CPE credits perhaps I only had 5 or 6 hours of actual education (not counting the fact that an hour is only 50 minutes).

I will continue to state that if a tax preparer is not already ethical then sitting through a 2 hour sermon every year ain’t going to make him/her so. While I would support perhaps a 1 hour update every other year, 2 hours every year is a waste of time and money.

The main value of the new regulation regime to the IRS is providing a central registry of tax return preparers, via the PTIN.

The main value of the new regulation regime to the preparer is the recognition of previously unenrolled serious tax preparers through the RTRP designation. Having the initials RTRP after one’s name puts the previously unenrolled, like myself, on par with CPAs and EAs when it comes to 1040 preparation, and will somewhat remove the unfair, and unearned, advantage that CPAs have had over the years, based on the public misconception that a CPA is automatically a 1040 expert.

Currently any Tom, Dick or Mary can hang out a shingle as a tax preparer. I have seen signs advertising “Taxes Prepared Here” in some awfully strange places – including the window of a barber shop. The RTRP designation elevates the true previously unenrolled tax preparer to the status of a tax professional.

The main value to the taxpaying public is to identify individuals who have passed a competency test and take required annual CPE in federal taxation, and have not just purchased a flawed tax preparation software package and hung out a sign. The initials EA have identified educated and current tax professionals for years. Now the initials RTRP will also identify individuals who at least know their arse from a hole in the ground when it comes to preparing 1040s. The initials CPA do not.

Joe has said in the past that the new regime will add unnecessary costs for tax preparers, and materially increase tax preparation fees. Horse pucky. $65.25 per year is a pittance, less than $1,00 per 1040 client (in my case at most 20 cents more per client). While there will be a one-time fee to take the competency test (which I still firmly believe should have some kind of grandfathering exemption), it is a one-time fee. And, as I have said time and again, if a serious tax preparer is not already taking at least 15 hours per year of CPE in federal taxation he should be. For calendar year 2011 I will have 32 hours in federal tax CPE and 8 hours in state tax CPE (better make that 30 hours of federal CPE, as I will be doodling through the ethics portion).

Joe has also said that the new regime will force many of the more “casual” preparers out of business. This is not a bad thing. Would you go to a “casual” dentist? Or have your house wired by a “casual” electrician?

So we all agree that the registration and licensure of tax return preparers will not stop the unethical from preparing fraudulent returns. But it does make things better for the IRS, the profession, and the taxpaying public.

3 comments:

The other thing it does, I believe, is make it easier to "pulll the ticket" of preparers. Under the old regime the IRS had to go to federal court to get an injunction for a preparer whereas pulling the "right to practice" of an EA, CPA or lawyer is an administrative matter.

As a CPA, I am still held to a higher standard as compared to a preparer who is unenrolled and does not have to answer to a regulatory board. Anyone can brag about all the CPE they have taken, but they do not have to verify or answer to a regulatory board, if they are unenrolled. The IRS by instituting the registration program will now govern those unenrolled preparers. I agree not all CPA's are qualified to prepare tax returns, but ethically we must as CPA's adhere to the standards of our regulatory board. I guess my question is; would you as a taxpayer rather post a complaint to Angies List or complain to the Regulatory Board who governs the actions of that preparer?

There are lots of CPA CPE exam providers online where you can take the course anywhere you want at your preferred time. For example you want to work in Texas and you are a resident of Florida then you won’t need to go there or travel just to take the exam thanks to Texas CPE online unlimited courses offered by accredited providers through the web. These courses featured with an "Instructor-connect" program where you can interact with an online adviser to guide you in different phase of the exam.

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